STATE: Praise plan for more pensions

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You seem to miss one of the most critical elements of the proposed Retirement Savings Act, Senate Bill 1234, in your editorial, âPension madnessâ (Our Views, Feb. 28). It is a secure plan that has no risk to taxpayers. The true risk is in doing nothing.

California is facing a retirement tsunami of epic proportions. Studies peg our national retirement savings shortfall (the difference between what weâve saved for retirement and what is actually needed) at more than $6.6 trillion and rising every day. Here at home it is projected that nearly 50 percent of middle-income Californians will retire at or near poverty. It means more seniors in the work force, fewer jobs for younger workers and an over-reliance on public assistance, creating skyrocketing state debts that no amount of entitlement reform or cuts will cure.

Many Californians save for retirement through a plan at work. That is not the case for 7 million workers with no access to a workplace option. We must find a simple way for these individuals to take personal responsibility for their own retirement without putting taxpayers on the hook. Senate President Pro Tem Darrell Steinberg and I have sponsored Senate Bill 1234 â" the California Retirement Savings Act to address this glaring need.

Your editorial leads with a significant and incorrect assumption: âLegislators in a deficit-ridden state should at least avoid creating new public obligations.â This plan comes at no risk to taxpayers. Not only does Californiaâs Constitution prohibit such liability (Art. XVI, Sec. 1), but the measure will explicitly ensure that financial liability rests exclusively with the private sector underwriter that guarantees the conservative rate of return.

Our measure will provide a voluntary tool for employees to save for retirement that will act as a critical supplement to Social Security and that will be portable. This savings plan will operate in a similar manner to an old-fashioned savings account with your local bank, but without the complimentary toaster. It will have better rates of return given the length of investment that will be pegged at the Treasury bond rate, generally considered one of the safest of institutional investments (typically earning between 3 percent and 5 percent).

The fund will be managed in the same way as the stateâs ScholarShare program, managing nearly $4.5 billion in individual assets at no cost to taxpayers. The board for that program hires an investment firm to manage the fund and the accounts of each participant. The only difference here is inclusion of an insurance component paid for by participants to guarantee the rate of return. Given that participants will be part of a very large investment group, the board will leverage that collective purchasing power to negotiate very low fees in the private market.

The other challenge in addressing this looming catastrophe is the cost and burden for most California small businesses to implement any sort of retirement benefits for their employees â" even in the best of conditions. Federal laws require comprehensive quarterly reporting and impose a fiduciary responsibility upon the employer with these plans.

Under SB 1234, the small businessperson who cannot afford to offer a retirement plan can assist his employees by merely using a payroll-deduction system that lets the employee make his or her regular fund contributions. No reporting hassles for the small business and most important, no fiduciary responsibility. The employer can also make a contribution if he chooses.

It is irresponsible, shortsighted or both to ignore whatâs staring us in the face. How many seniors do you know now, who are having trouble making ends meet? That number will explode in the coming years and it will be the taxpayers stuck with the consequences. We must be creative in finding affordable solutions to big problems.

Some argue we canât afford to help Californians save for retirement. But with taxpayers protected against liability, Iâm not clear on how we can afford not to.

Kevin de Leon, D-Los Angeles, represents the 22nd District in the California Senate.

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